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By Xiaohua Zeng, Srabana Dasgupta and Charles B. Weinberg


Although prices in the automobile market are traditionally negotiated, recently, some manufacturers are selling their vehicles at a "no-haggle " or fixed price. In order to understand the impact of such a strategy, we investigate the case of Toyota’s fixed price policy, or the “Access Toyota ” program, which was introduced in Canada starting 2000. To date, the program has been implemented in all the provinces of the country, except, due to provincial regulations, in Ontario. This creates a natural experiment in which to examine the effect of a fixed price strategy on the prices and sales of a firm and its competitors. Our results suggest that the program had important competitive implications. We find that prices of both Toyota and Honda were higher in provinces with the program, but surprisingly Honda’s price differential was comparatively higher than Toyota’s. In terms of sales, Toyota’s sales were not affected by the introduction of the program, but Honda had higher sales in the provinces with the program than in those without the program, as compared to their sales before the program was introduced. We conclude that this fixed price policy has benefited both firms, but the effect on consumer welfare cannot be conclusively determined

Topics: Pricing, competitive analysis, bargaining
Year: 2008
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